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On an Alleged Inconsistency in Aggregate-Supply/Aggregate-Demand Analysis

Author

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  • Amitava Krishna Dutt

    (University of Notre Dame)

Abstract

It has been argued that aggregate-supply/aggregate-demand (AS/AD) models suffer from an inconsistency because they assume that firms set price and adjust quantity for the AD curve and are profit-maximizing price takers for the AS curve. It is shown that this inconsistency is rife in intermediate macroeconomic texts. However, it is argued that the problem can be solved by appropriately reinterpreting the AD curve and the dynamics of the model. Thus while there is no need to jettison the AS/AD model as a teaching tool on grounds of internal inconsistency, there is a need to interpret it carefully.

Suggested Citation

  • Amitava Krishna Dutt, 1997. "On an Alleged Inconsistency in Aggregate-Supply/Aggregate-Demand Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 23(4), pages 469-476, Fall.
    • Handle: RePEc:eej:eeconj:v:23:y:1997:i:4:p:469-476
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume23/V23N4P469_476.pdf
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    Citations

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    Cited by:

    1. Harald Badinger & Ingrid Kubin, 2008. "As‐Ad Revisited: Overshooting Adjustment Dynamics Under Naïve Expectations," Metroeconomica, Wiley Blackwell, vol. 59(4), pages 574-593, November.
    2. Angel Asensio & Dany Lang & Sébastien Charles, 2012. "Post Keynesian modeling: where are we, and where are we going to?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(3), pages 393-412.

    More about this item

    Keywords

    AS AD; Macroeconomics; Supply;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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